Is there a heartbeat left in sports stocks?

Editor's Note

As part of our special report on sports finance,
Street & Smith's SportsBusiness Journal takes an in-depth look at
eight public sports companies, starting on page 26. Included are revenues,
staffing levels, directors, shareholders and who owns how many shares.
The information was gathered almost exclusively from securities filings
made with the Securities and Exchange Commission.

To access securities filings electronically through EDGAR, or Electronic
Data Gathering, Analysis and Retrieval system, go to www.sec.gov on
the World Wide Web. Chose "EDGAR Database" from the menu, and then choose
on the next screen "Search the EDGAR Database." Then choose "Search
the EDGAR Archives," which will bring you to a keyword box, where you
can enter the public company name and hit "enter" to find a wealth of
public information.

When
the season-old XFL kicked the bucket in May, the eulogies were varied,
from those that critiqued the poor play to one that blamed the constant
media glare. But one cause that was rarely, if ever, examined was the
league's ownership by two public companies, whose shareholders did not
appreciate losses or negative publicity.

Not only is the XFL's final loss expected to be in the $80 million neighborhood,
which will be split between General Electric Co.'s NBC and WWF Entertainment, but
both companies came under withering criticism for the boorish league and its plummeting
TV ratings. This proved simply untenable for public companies.

And so the XFL became the latest example of a disturbing trend in sports: The
public stock markets don't seem to like professional sports. This is alarming because
public markets have for years provided the fuel for other industries to grow, and
now sports may have that avenue closed.

"I am coming to the conclusion that the professional sports industry does not
seem well-suited for the public markets," said Robert Caporale, chairman of Game
Plan LLC, which advises teams and leagues. "We have seen too many indications of
that."

For the XFL, that disturbing fact helped spark its death. Wall Street analysts
pounded WWF for its football strategy, even though losing tens of millions of dollars
on a start-up league is hardly surprising. The privately owned Major League Soccer
has by some estimates lost $250 million in its first five seasons, yet there is
little hue and cry for the organization to shut its doors.

"The time frame that shareholders are willing to tolerate for a developmental
stage is much shorter for sports companies," said Tim Conder, an analyst with A.G.
Edwards & Sons, where he covers companies like Championship Auto Racing Teams
Inc. and Callaway Golf Co. "Some sports companies would be better serviced continuing
on in a private manner."

The problem with sports, Conder added, is earnings and revenue growth is not
as strong as in other businesses. Conder compares sports to biotechnology, which
also has tremendous start-up costs. But there the returns are much higher if a product
succeeds, he explained, so investors are willing to sustain initial losses.

Even motorsports, the one sector of sports with relative success in the public
markets, has come under pressure in the last year. Track operators International
Speedway Corp. and Speedway Motorsports Inc., which used their stock bounty to fuel
their growth in the mid- to late 1990s, have stumbled. While a lucrative new TV
contract was supposed to fuel their stocks, a faltering economy, poorly planned
growth and tragedies such as the death of Dale Earnhardt have hurt them instead.

And CART, one of the first leagues to go public, in 1998, has been a basket case
of missteps and poor results. The stock now trades below its IPO price, and the
company had three CEOs in a six-month period last year.

"When you are a public company, you are subjected to the quarterly expectations
of Wall Street," said Tony George, founder of CART rival Indy Racing League. "Sometimes
you need to act quickly and decisively, and that is a difficult challenge when you
are a public company."

How opposed is George to public ownership? If CART had been a private company,
he said, there is a good chance the IRL and CART would have successfully re-merged.

"If public company ownership was a good idea, NASCAR would have done it," he
said.

The story line gets even worse when the tale turns to public ownership of individual
teams. Less than two weeks ago, Boca Resorts Inc. announced it had agreed to sell
the Florida Panthers ice hockey team. The Panthers went public in 1997 amid great
fanfare, but with hockey unprofitable, the company quickly branched into hotels
and resorts (the name of the holding company was Florida Panthers until last year).
By the time of the sale announcement, ice hockey represented a sliver of Boca's
revenue.

Gone, too, from the public markets this year were the Seattle SuperSonics, formerly
owned by The Ackerley Group Inc., a radio company and billboard operator. Ackerley
dumped the Sonics when the company ran into debt problems. Unloading the money-losing
Sonics gave an immediate boost to cash flow.

"Teams shouldn't be public" on their own, maintained David Moross, managing partner
of Sports Capital Partners, an investment fund that buys and invests in sports companies
but has ruled out buying teams. "I really believe that many of these [teams] need
to be acquired by strategic investors, like a Time Warner." Time Warner already
owns three Atlanta sports teams.

Even in Europe, where nearly two dozen soccer clubs are publicly owned, Moross
said, only a handful trade above their IPO prices.

In the United States, only two teams remain publicly traded: the Boston Celtics
and the Orlando Predators of the Arena Football League. Both are poor stock performers
and are more novelty buys for fans as opposed to serious investments.

Nonetheless, the search continues for the profitable public sports venture. The
recently hatched Team Racing Auto Circuit is already public through a company called
Team Sports Entertainment. And some eyes are on YankeeNets, which owns three professional
sports teams and may launch a regional sports network, as a possible winner.

"There are clearly people out there both domestically and internationally who
are still searching for the right formula," said Jim Nash, who runs sports finance
for Bank of America Corp.

The solution? For Nash, the successful public sports company has to establish,
like any business, a solid brand. He pointed to Manchester United, which has been
a stock market sensation on the London Stock Exchange. Manchester United, commonly
seen as the most recognizable sports team outside the United States, lends its valuable
logo to products and markets its name across the world, not just in its city.

"The sports team ownership is not the end but the means to a greater end, whether
that be media or some other branded product," Nash said. "It is difficult, will
prove challenging, but people are still searching."